Citigroup agreed yesterday to pay 8 million to settle a lawsuit over bad loans that the bank passed on to the Federal Housing Administration to insure. The whistle-blower who originally brought the case, Sherry Hunt, an employee of Citi's mortgage department, said the company actively undermined the process that was supposed to check for fraud in order to push through reckless loans and get higher profits.

The suit itself makes for good reading. We've pulled out the juiciest bits, and explain just what Citi appears to have been doing.

Citi appears to have flouted those standards. According to the lawsuit, the bank passed along subpar loans to the FHA until very recently, making "substantial profits through the sale and/or securitization of FHA-backed insured mortgages" while "it wrongfully endorsed mortgages that were not eligible."

Citi was passing on mortgages with particularly high rates of default to the FHA, costing taxpayers millions in insurance claims:

The quality control unit in charge of reviewing the mortgages had "marching orders" to pass questionable loans by "brute force":

The company started basing compensation for some employees on how many loans got through quality control, intensifying the pressure:

In January 2011, Citi gave awards to employees who had successfully challenged quality control ratings. In a detailed Bloomberg News story, the whistle-blower, Hunt, said that at the awards ceremony, quality control workers "were humiliated in front of everyone":

Lenders are supposed to self-report to the government when they discover fraudulent or shoddy loans. But Citi almost never did:

At one point, Citi erased the records of nearly 1,000 potentially fraudulent loans:

Citi's settlement

The company admits to passing on loans that were "not eligible" for government guarantees:

Citi has to pay 8.3 million within 30 days. Of that sum, million will go to the whistle-blower. The suit was filed under the False Claims Act, which rewards whistle-blowers who bring cases resulting in settlements in which it was alleged that the government was defrauded:

The government has reserved the right to pursue criminal charges:

A spokesman for Citigroup said in an emailed statement: "We take our quality assurance processes seriously and have pro-actively undertaken process improvements to ensure that they are as robust as possible. Our government-related business is very important to us, and we will continue as a participant in the FHA's Direct Endorsement Lender Program with the full support of HUD."